There are two basic types of trusts: Living trusts and testamentary trusts. A living trust can be either revocable or irrevocable, and is set up during the person’s lifetime. A testamentary trust is set up in a will and established only after the person’s death when the will goes into effect.
Within the framework of these two types of trusts, there are dozens of varieties to accommodate an individual’s or family’s specific needs. The following is a rundown of the more unusual versions.
Pet Trust – Also known as a “Purpose Trust,” this vehicle allows you to leave your Labradoodle an inheritance. Technically, it is used to set aside money and specify care instructions for a beloved pet. The trust assigns a trustee the responsibility of using the funds to care for your pet after you pass away in the manner you detail. This trust can be more than just superfluous, however, particularly if you live alone. Once you pass away, your pets could be left alone for a week or much longer before a grieving friend or family member begins the process of clearing out your residence. In many cases, he may assume someone else is taking care of your pet(s), but that might not be the case. A pet trust assigns this responsibility to a close friend or family member to help ensure your pet is not neglected when you pass away. Be aware that pet trusts are not allowed in all states.
Rabbi Trust – The Rabbi Trust was thusly named because the first one was created for a rabbi. This type of trust is typically set up for high-net executives to instruct their employers to defer compensation to the trust until they retire. What this does is postpone taxable income until the high-earner is in a lower income tax bracket.
Totten Trust – This is a common arrangement at a bank in which an account holder completes a bank signature card designating one or more beneficiaries to receive the account when the depositor dies. This is a very simple way to transfer bank account assets to heirs without them being subject to probate.
Funeral Trust – This trust is held by the funeral home or cemetery of your choice. It is pre-funded to ensure that funeral and burial expenses are immediately covered upon your death. This means that your loved ones won’t have to pay out-of-pocket for your burial before your will is executed or probate court assigns funds. These funds can be used for cremation, a grave-site marker, a mausoleum and a burial service or memorial.
Blind Trust – This is a funded trust in which you hand over all fiduciary responsibility and relinquish control over how the trust funds are managed. A blind trust is used to help avoid a conflict of interest when the owner is a government official or company executive so as to prevent the perception that insider knowledge and/or trading is used to generate or preserve wealth.
Secret Trust – A trust created in secret often contradicts (and supersedes) instructions left in a will. This permits the owner to transfer certain assets to a person or entity that, if loved ones were aware of beforehand, might create conflicts for the asset owner. This way, the controversy would occur after his death, when he doesn’t have to deal with it.
Supplemental Needs Trust – This trust is set up to provide for an individual with special needs. It can help supplement aid for that person’s care and comfort without being counted toward eligibility for government benefits.
Qualified Personal Residence Trust – The QPRT allows you to remove a residence from your estate. Basically, you transfer either your principal residence or a vacation home into an irrevocable trust for a specified period of years. You may continue to live in the home until the trust term ends, at which point the property will officially transfer to your beneficiary and no longer be a part of your taxable estate. However, should the owner die before the end of the trust term, the property will remain a part of his estate and all tax advantages will be terminated.